Monthly Archives: June 2010

Ugh, talk about a lousy time to have to take your net worth. The day after the 340 point slide on the TSX and I also just paid my property taxes which drained my savings. Oh, well good thing I invest for the long term and I don’t panic about short term fluctuations.

Net Worth$341,700 (+$3,200 or +0.9% from my last update). [+ 12.2% YTD ]Investment Net Worth$105,100 (-$5,700 or –5.1% from last update). [+ 6.5% YTD]
Mortgage is down by $26,600 or 62% of my goal for 2010.

The stock market slump of yesterday took its toll along with having to pay out my property tax for the year from savings. The combined effect makes my investment net worth look bad this month, but I’m not worried. I’m focusing on debt reduction for the year so I know I only need some modest growth to keep on track for my long term plans.

I continued to keep the house valuation frozen as I’m still seeing some odd pricing of housing here. I’ve seen list pricing for somewhat similar houses vary by $40,000 so I’ll just wait a bit for the market to calm down before I update the house value.

I keep working on my mortgage goal and I’m 62% done for the year. As I mentioned before I know I won’t get to 100% of my goal this year because of working less from July onwards, but I’m still curious how close can I get to that goal. All in all it’s fairly nice to finally be at a five figure mortgage balance for the first time in my life.

So overall I’m happy to see that net worth number keep slowly climbing.

I consume a lot of online content, upwards of around 40 blogs and approximately 15 podcasts weekly. I find the content provided by independent writers to have a lot more useful and unique ideas than mainstream media. In the consumption of this media, from time to time I am exposed to a different form of advertising than is normally seen in conventional media, generally in the form of requests for donations. When I first started listening/reading this media, I generally disregarded these requests, as it went against the way I had previously consumed content.

Not paying for this type of content seemed to perfectly align with my personal finance values, basically getting stuff for free. Generally, people who produce the blog or podcast are doing it because they like to do it, not for the money. What do you do however, if the producer of this content (which presumably you enjoy) tells you that they are having a hard time affording bandwidth or other expenses involved, meaning this content may disappear?

In this circumstance, I donated $5 to the site. I noted that it was subscribed to by around 10,000 people, I figured that if a very small percentage of listeners gave the same amount, most of the financial problems the site was having would probably be taken care of. I don’t necessarily agree with the business model, but I appreciate the content and don’t mind supporting the producers of it. The way I look at it, I’ve paid $5 to be entertained.

In the same mindset, I look at purchasing apps/games from the i-tunes store for my i-pod touch as a form of entertainment. One of my cousins performed a “jail-break” operation on his i-pod, which allows him to basically steal apps from the content provider via bit-torrent sites. In my younger days, this may have seemed like a good idea, as I didn’t really have any money to buy things like this, but now it just seems easier to buy the app and support the provider so that perhaps they will continue to create things that I want to consume.

The way I look at it, there’s a price on content for a reason, whether it’s free with the request for a donation from many blog sites I read, $0.99 for a skee-ball game from the i-tunes store or $9.99 for an album online, somebody has produced content and is looking to get back some money for the content that is being provided.

The way I deal with purchases or “donations” from the internet is to set aside $25 each month for this type of content. This $25 is a pretty random number and basically comes from the amount that I used to spend on a zip.ca DVD rental membership. I was getting a lot more entertainment from online content than I was from Hollywood producers and I prefer to spend this money supporting the content that both educates and entertains me.

I’m wondering if other people spend money online? Do you donate to online content providers? If so, how do you decide (if any) to give?

** Note ** – this is not a reflection on “The Canadian Dream: Free at 45” website, I’m not soliciting donations or insinuating anything business-wise about the site (which I have no financial interest in). The purpose of this post was to discuss a portion of my monthly budget, as well as perhaps a “new” economy that has been created in the past 10 years that was non-existent previously and if people’s spending has changed in a similar manner to my own.

I’ve always been interested in money. Even before I became a financial advisor, I started reading all the financial books I could get my hands on. I was able to find the first edition of Your Money or Your Life (1992 edition). (It was a long time ago; if my summary is of a different book, please correct me in the comments.) It presented a very simple, two step financial plan. Step one was to reduce spending. Step two was to increase investment income. Now that I am a Certified Financial Planner, I know that this is the very essence of a successful financial plan. The author, Joe Dominguez, suggested putting a chart on the wall, and charting two lines. The line that represents monthly spending should be decreasing, while the line that represents monthly investment income should be increasing. The month they cross is when you are financially independent. At the time, bonds provided the safety and income that the author recommended.

Later, I found and read Rich Dad Poor Dad. Although the author didn’t present a well-developed financial plan, he recommended accumulating passive income. Although he doesn’t address the very important idea of risk, his thinking intersects with that of Joe Dominguez in the idea of building up investment income. Realistically, having a source of passive income is the only way a person could retire from active work. Otherwise, they’ll have to work to support their lifestyle.

Besides the ultimate payoff of financial independence, acquiring passive income has other advantages. For example, this approach suggests a simple investment strategy. In my opinion, buying income is the best definition of investment. Any strategy that bets on increasing values is speculative by definition. If a person is focused on accumulating passive income, they are most likely to focus on investments that provide an attractive current yield (such as interest or dividends). This mentality of buying income will also affect one’s attitude toward risk. The prevailing academic viewpoint is that stock market returns are random and risk is equivalent to variability. However, when buying income, risk represents the possibility of cash flow (interest or dividends) being reduced.

Further, using this approach makes tracking progress relatively simple. Each time I buy more income, I make progress toward my goal. If, for example, the goal is $2000 per month of income, and my investments produce $1000 per month of income, I know that I will be financially independent after I buy another $1000 per month of income. This strategy also puts market value fluctuations into perspective. The market value of the investments may rise or fall, but the income is likely to remain relatively consistent. That allows the investor to avoid emotional reactions. Market increases aren’t cause for celebration. Market crashes aren’t cause for panic. Better yet, market crashes provide good opportunities to buy income at relatively low prices. Focusing on yield helps keep this in perspective.

There are various strategies that can all move a person closer to retirement. The strategy that seems the most reasonable to me is to buy income. This approach makes tracking progress a simple matter and keeps the true value of investments in better perspective. It also simplifies investment decisions. Do you think this simplifies investing, or do you feel it takes a professional to make investment decisions? Do you have a bad experience or a lesson learned that you want to share? If you can, please share your own investment strategy, and why you chose it.

Disclaimer

I am not god. I am a mere mortal as such my reality is defined by my own views. So your reality might not resemble mine because of your views. As such all opinions, ideas and investments on this blog might not work for you as they did for me. Be a big person and do your own research and make up your own mind before trying something. The opinions expressed are my own. You might need to contact a local professional for advice.